To help the Kenya Revenue Authority (KRA) maximize its collecting potential, tax experts advise a single lifelong identifier for all eligible taxpayers.
The Institute of Certified Public Accountants of Kenya (ICPAK), the Institute of Economic Affairs (IEA), and consultancy firm, Deloitte East Africa were among the tax experts who testified before Parliament that the Kenya Revenue Authority (KRA) is currently unable to track and register potential taxpayers because there is no integrated system in place.
“A significant part of potential taxpayers have been left out of the tax net because there is no system in place to identify taxpayers. As a result, the Kenya Revenue Authority is unable to locate and register these individuals, according to Philip Kaikai, chairman of ICPAK, who testified before the National Assembly’s Finance Committee regarding the proposed National Tax Policy (NTP). In order to prevent dormant PINs, the experts also advocated for the adoption of a personal identification number (PIN) categorization for employees, students, and businesses.
They said that doing this would enable partnerships and sole proprietorships to have PINs distinct from individual or personal PINs. The NTP suggests that a thorough review of tax legislation be carried out every five years in order to address the unpredictable nature of tax rates. The strategy also urges the creation of a framework for identifying tax benefits and addressing issues with international taxation and treaties.
The Treasury document aims to address issues with the expanding tax expenditure, which is projected to account for 2.61 percent of GDP in 2021, the complexity of taxation of emerging economies, including internet business, low tax compliance, and delays in the resolution of tax disputes. According to Mr. Kaikai, the proposed NTP has flaws that only make a small number of Kenyans who are already paying taxes bear the burden.
“There are other concerns that affect tax administration that are not covered in the plan on tax administration. Access to taxpayer transactional information is restricted, according to Mr. Kaikai. Kenya now uses a self-evaluation. This suggests that KRA depends on the taxpayer’s integrity and accuracy in reporting their income.
ICPAK suggests that all potential taxpayers be identified and registered using technology and data management. “The policy should require every legal person to be issued with a PIN to keep proper books of accounts for tax determination and those with an annual turnover of Sh5 million to be subject to audit and representation by a tax agent,” ICPAK said. “This will broaden the tax base and enhance compliance in Kenya’s tax system.”
There is a need to track medium and small businesses (MSMEs) that interact with goods using customs data. The institute also requests that the KRA improve its use of third-party data from telcos, utility companies, and banks to identify transactions in the digital sector.
“There is a need to adopt a single mechanism that will help KRA to collate and collaborate existing data sets of taxpayers and citizen information as well as enhance information sharing inter and intra-country,” said Mr. Kaikai.
In order to ensure that tax audits are conducted in a way that is efficient, effective, and predictable, including through the use of clearly defined framework, standards, methodologies, and procedures, including sampling, Deloitte advocated the necessity for a framework to compel KRA to create and publish a tax audit process guideline.
